Here's why Apple needs an "all you can eat" iTunes

According to the Financial Times, Apple is in talks with big music executives over an "all you can eat" unlimited access plan to iTunes. 

Apple is in discussions with the big music companies about a radical new business model that would give customers free access to its entire iTunes music library in exchange for paying a premium for its iPod and iPhone devices.

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Apple has so far offered only about $20 per device, two executives said. “It’s who blinks first, and whether or not anyone does blink,” one executive said. 

OK, first off, a reality check.  For $20 a device I don't see the music industry taking this offer seriously simply because the dominance of the iPod and iTunes would mean that the deal would hammer sales at other music outlets.  So before this goes anywhere Steve Jobs will need to put a lot more money on the table.  Will more money be offered?  My guess is yes.

The bottom line here is that iPod sales are starting to stagnate and Apple needs a deal like to stimulate future interest.  Partly this is down to the fact that pretty much everyone who wants an iPod already has at least one.  The problem with the iPod is the ubiquitous nature of the device.  You can get them in different sizes and different colors, and some come with more features than others, but after you've handled a few they all start to taste like beans.  Apple has done wonders with the iPod, cramming support for video into the device, and a phone, and a touch screen interface, oh and the Internet, but all this leaves you wondering what's left to add.  Apple can keep on adding more capacity, but let's face it, not many people are going to fill a 160GB iPod with stuff they bought from iTunes.  Taking the capacity up to 200GB and beyond is just wasted capacity for most iPod owners.

Enter the "all you can eat" iTunes subscription model.  If the trough is free (or at least gives the impression of being free because folks will have paid upfront) all of a sudden storage capacity becomes relevant again.  The more storage you have, the more music (and video) you can cram into your 'Pod.  Owners who have maxed out their storage will buy newer iPods (or a second or third iPod) so the upgrade cycle is no longer linked to obsolescence.  Also, since the easiest thing for Apple to do to keep the iPod fresh is to keep bumping up the gigabytes on the iPods, it means that Apple can unveil new iPods with increased capacities at regular intervals.  Apple wins again, and shareholders can breathe a sigh of relief.

Also, there's that pesky DRM stuff.  Apple is under pressure from companies offering music which is free of DRM to do the same, but so far Apple seems pretty attached to DRM - either by choice or because the music industry isn't willing to cut a deal.  Moving to a subscription model means that Apple can continue to embrace DRM and lock other media players out from the iTunes ecosystem. 

The only stumbling block I can see is cost.  If Apple really wants (or maybe even needs) a deal like this to go through, the cut that music executives are going to want to make it happen is likely to be higher than Apple would like t to be.  After years of being tied to Apple and iTunes the music industry is now in a position to be able to enjoy a freedom thanks to having multiple high-profile virtual outlets (such as that offered by Amazon.com).  It's now Apple that needs the music industry.

Thoughts?